Sunday 9 August 2009

A name is no longer enough to bank on

The fallout from the troubles of two prominent Saudi family businesses, the Saad Group and Ahmad Hamad Al Gosaibi and Brothers, brings nearer the demise of the long-established practice of doing things based on a family name and a handshake.

Gulf families have long prided themselves on the value of their names. But in today’s world, it will take more than a name and a handshake to secure funding, especially for family businesses with global interests.

The old ways might still work for some family businesses that are cash rich, domestically focused and which deal with like-minded family businesses. But the Al Gosaibi and Saad saga has made both banks and family businesses nervous in the Gulf. The implications for such groups is that bank borrowing will get tougher; and the quality of information that family businesses provide will rise. In a perverse way, the higher the profile and business interests of a Gulf family group, the more stringent will be the banking relation terms and the more intrusive the required information.

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